Hipgnosis considers sale of music assets in effort to narrow share price discount

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Hipgnosis Songs Fund, the UK-listed group that owns rights to music by artists including Neil Young and Nirvana, is considering whether to sell off some of its catalogue to try to narrow the valuation gap between its shares and its assets.

Merck Mercuriadis, chief executive and founder of Hipgnosis, said the company’s value and prospects “[fail] to be reflected in the current share price”. 

He added that he has been working with the board and its largest shareholders on several options to boost value. In annual results on Thursday, HSF said it was considering a “strategic sale of catalogues of songs” after the Financial Times reported that investors were pushing for action to support the fund’s flagging share price.

Mercuriadis told the FT on Thursday that a new strategy would be announced in August ahead of a shareholder vote in September on whether to keep the fund going. “We believe we will get the mandate to continue the fund,” he said.

However, the company also said that a disposal of music catalogues, which are considered intangible fixed assets for UK corporation tax purposes, would potentially incur a tax charge. If the group disposed of all of its music, it said as an example, it could face a corporation tax charge of as much as $245mn. 

Shares in the group were trading 2 per cent lower on Thursday at 74p, giving it a market capitalisation of about £892mn, a discount to its net asset value of about 50 per cent.

At its results, which were published two days after the fifth anniversary of its initial public offering, Mercuriadis said the business continued to believe that the best way to maximise shareholder value was to buy and hold sought-after music assets. But he added that the investment strategy had always been to create capital growth as well as income.

Mercuriadis, who pioneered the acquisition of song copyrights as an asset class, said: “We don’t think the value of the content is reflected in the share price. We have to narrow the discount. All options [are] available to us.”

The company can no longer buy new song rights given the heavily discounted share price, which prevents it from raising equity funding for purchases without diluting existing shareholders.

The net asset value per share was $1.20, a 9.2 per cent decrease in the year to March, reflecting the amortisation of the assets. The company said that the “operative” NAV per share was the more “relevant financial indicator”. This increased 3.6 per cent year on year to $1.90, driven by a 4 per cent increase in the fair value of the portfolio provided by an independent valuer. Net revenue dropped to $147.2mn, from $168.3mn the year before.